Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2005

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For The Transition Period From ______ To ______

Commission file number 001-12482

GLIMCHER REALTY TRUST
(Exact Name of Registrant as Specified in Its Charter)

Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
31-1390518
(I.R.S. Employer
Identification No.)

150 East Gay Street
Columbus, Ohio
(Address of Principal Executive Offices)
43215
(Zip Code)

Registrant’s telephone number, including area code: (614) 621-9000


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]
 
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [  ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X]  

As of October 25, 2005, there were 36,504,976 Common Shares of Beneficial Interest (“Common Shares”) outstanding, par value $0.01 per share.
 

1 of 27 pages
GLIMCHER REALTY TRUST
FORM 10-Q
 
INDEX
 

PART I: FINANCIAL INFORMATION
PAGE
   
Item 1. Financial Statements.
 
   
Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004.
3
   
Consolidated Statements of Income and Comprehensive Income for the three months ended September 30, 2005 and 2004.
4
   
Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2005 and 2004.
5
   
Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004.
6
   
Notes to Consolidated Financial Statements.
7
   
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
15
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
25
   
Item 4. Controls and Procedures.
25
   
   
PART II: OTHER INFORMATION
  
   
Item 1. Legal Proceedings.
26
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
26
   
Item 3. Defaults Upon Senior Securities.
26
   
Item 4. Submission of Matters to a Vote of Security Holders.
26
   
Item 5. Other Information.
26
   
Item 6. Exhibits.
26
   
   
SIGNATURES
27
 
2
PART 1
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GLIMCHER REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except per share, par value and unit amounts)

ASSETS
 
   
 September 30, 2005 
  
December 31, 2004 
  
Investment in real estate:
           
Land
   $ 291,997  
$
304,175
  
Buildings, improvements and equipment
    
1,837,134
    
1,925,283
  
Developments in progress
    
43,772
   
21,182
  
     
2,172,903
    
2,250,640
  
Less accumulated depreciation
    
455,773
   
435,821
  
Property and equipment, net
    
1,717,130
    
1,814,819
  
Deferred costs, net
    
18,258
    
18,889
  
Assets held for sale
    
75,178
    
1,590
  
Investment in real estate, net
    
1,810,566
   
1,835,298
  
               
Cash and cash equivalents
    
9,709
    
8,446
  
Restricted cash
    
17,369
    
16,330
  
Tenant accounts receivable, net
    
48,568
    
51,873
  
Deferred expenses, net
    
9,310
    
9,449
  
Prepaid and other assets
    
27,662
   
25,628
  
Total assets
  
$
1,923,184
  
$
1,947,024
  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY

Mortgage notes payable
  
$
1,301,083
  
$
1,328,604
  
Notes payable
    
129,000
    
74,000
  
Accounts payable and accrued expenses
    
58,694
    
53,892
  
Distributions payable
    
23,406
   
23,186
  
Total liabilities
    
1,512,183
   
1,479,682
  
               
Minority interest in operating partnership
    
17,001
   
23,520
  
               
Shareholders’ equity:
              
Series F Cumulative Preferred Shares of Beneficial Interest, $0.01
par value, 2,400,000 shares issued and outstanding
    
60,000
   
60,000
  
Series G Cumulative Preferred Shares of Beneficial Interest, $0.01
par value, 6,000,000 shares issued and outstanding
    
150,000
    
150,000
  
Common Shares of Beneficial Interest, $0.01 par value, 36,379,266 and 35,682,858
shares issued and outstanding as of September 30, 2005 and December 31, 2004,
respectively
    
364
    
357
  
Additional paid-in capital
    
543,983
    
534,286
  
Unvested restricted shares
    
(1,185
)
  
-
  
Distributions in excess of accumulated earnings
    
(359,129
)
  
(300,786
)
Accumulated other comprehensive loss
    
(33
)
  
(35
)
Total shareholders’ equity
    
394,000
   
443,822
  
Total liabilities and shareholders’ equity
  
$
1,923,184
  
$
1,947,024
  

The accompanying notes are an integral part of these consolidated financial statements.
3
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(dollars and shares in thousands, except per share and unit amounts)
 
   
 For the Three Months Ended September 30,
  
   
 2005 
  
 2004  
  
Revenues:
Minimum rents
   $ 54,037  
$
49,722
  
Percentage rents
    
1,428
    
1,615
  
Tenant reimbursements
    
24,011
    
22,930
  
Other
    
5,300
   
4,734
 
Total revenues
    
84,776
   
79,001
 
               
Expenses:
              
Property operating expenses
    
18,576
   
17,690
 
Real estate taxes
    
9,646
    
8,952
  
     
28,222
    
26,642
  
Provision for doubtful accounts
    
1,270
    
1,407
  
Other operating expenses
    
2,400
    
1,793
  
Depreciation and amortization
    
18,207
    
17,647
  
General and administrative
    
3,647
   
3,621
 
Total expenses
    
53,746
    
51,110
 
               
Operating income
    
31,030
    
27,891
  
               
Interest income
    
90
    
33
  
Interest expense
    
21,208
    
21,361
  
Income before minority interest in operating partnership and discontinued operations
    
9,912
    
6,563
  
Minority interest in operating partnership
    
(618
)
  
1,830
 
Income from continuing operations
    
10,530
    
4,733
  
Discontinued operations:
              
Impairment loss
    
(15,018
)
  
-
  
Gain on sale of properties
    
1,737
    
18,777
  
Income from operations
   
409
    
1,153
 
Net (loss) income
    
(2,342
)
  
24,663
  
Less: Preferred stock distributions
    
4,360
    
4,360
  
Net (loss) income available to common shareholders
  
$
(6,702
)
$
20,303
  
               
Earnings Per Common Share (“EPS”):
              
Basic:
              
Continuing operations
  
$
0.14
  
$
0.06
  
Discontinued operations
  
$
(0.33
)
$
0.51
  
Net (loss) income
  
$
(0.19
)
$
0.57
  
               
Diluted:
              
Continuing operations
  
$
0.14
  
$
0.06
  
Discontinued operations
  
$
(0.32
)
$
0.50
  
Net (loss) income
  
$
(0.18
)
$
0.56
  
               
Weighted average common shares outstanding
    
36,146
    
35,574
  
Weighted average common shares and common share equivalent outstanding
    
39,956
    
39,547
  
               
Cash distributions declared per common share of beneficial interest
  
$
0.4808
  
$
0.4808
  
               
Net (loss) income
  
$
(2,342
)
$
24,663
  
Other comprehensive income (loss) on derivative instruments, net
    
2
   
(11
)
Comprehensive (loss) income
  
$
(2,340
)
$
24,652
  
 
The accompanying notes are an integral part of these consolidated financial statements.
4
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(dollars and shares in thousands, except per share and unit amounts)
 
   
 For the Nine Months Ended September 30,
  
   
 2005 
  
 2004  
  
Revenues:
Minimum rents
   $ 154,668  
 
$
149,967
  
Percentage rents
    
4,170
    
4,385
  
Tenant reimbursements
    
70,998
    
70,258
  
Other
    
14,971
   
16,261
 
Total revenues
    
244,807
   
240,871
 
               
Expenses:
              
Property operating expenses
    
52,946
   
55,089
 
Real estate taxes
    
28,530
    
26,492
  
     
81,476
    
81,581
  
Provision for doubtful accounts
    
3,461
    
4,159
  
Other operating expenses
    
7,016
    
6,788
  
Depreciation and amortization
    
56,156
    
53,752
  
General and administrative
    
15,469
   
10,121
 
Total expenses
    
163,578
   
156,401
 
               
Operating income
    
81,229
    
84,470
  
               
Interest income
    
211
    
175
  
Interest expense
    
63,082
    
68,169
  
Equity in income of unconsolidated entities, net
    
-
    
3
  
Income before minority interest in operating partnership and discontinued operations
    
18,358
    
16,479
  
Minority interest in operating partnership
    
(577
)
  
2,135
 
Income from continuing operations
    
18,935
    
14,344
  
Discontinued operations:
              
Impairment loss
    
(16,393
)
  
-
  
Gain on sale of properties
    
1,703
    
21,797
  
Income from operations
   
2,488
    
5,511
 
Net income
    
6,733
    
41,652
  
Less: Preferred stock distributions
    
13,078
    
13,158
  
Less: Preferred stock redemption
    
-
    
4,878
  
Net (loss) income available to common shareholders
  
$
(6,345
)
$
23,616
  
               
Earnings Per Common Share (“EPS”):
              
Basic:
              
Continuing operations
  
$
0.13
  
$
(0.03
)
Discontinued operations
  
$
(0.31
)
$
0.70
  
Net (loss) income
  
$
(0.18
)
$
0.67
  
               
Diluted:
              
Continuing operations
  
$
0.13
  
$
(0.04
)
Discontinued operations
  
$
(0.31
)
$
0.69
  
Net (loss) income
  
$
(0.17
)
$
0.65
  
               
Weighted average common shares outstanding
    
35,900
    
35,402
  
Weighted average common shares and common share equivalent outstanding
    
39,831
    
39,416
  
               
Cash distributions declared per common share of beneficial interest
  
$
1.4424
  
$
1.4424
  
               
Net income
  
$
6,733
  
$
41,652
  
Other comprehensive income on derivative instruments, net
    
2
   
1,194
 
Comprehensive income
  
$
6,735
  
$
42,846
  

The accompanying notes are an integral part of these consolidated financial statements.
5
GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
 
   
 For the Nine Months Ended September 30,
  
   
 2005 
  
 2004  
  
Cash flows from operating activities:
Net income
  
$
6,733
  
$
41,652
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
Provision for doubtful accounts
    
3,680
    
4,864
  
Depreciation and amortization
    
58,531
    
59,193
 
Loan fee amortization
    
1,989
    
3,789
  
Income of unconsolidated entities, net
    
-
    
(3
)
Capitalized development costs charged to expense
    
359
    
140
  
Minority interest in operating partnership
    
(577
)
  
2,135
 
Gain on sales of properties - discontinued operations
    
(1,703
)
  
(21,797
)
Impairment losses
    
16,393
    
-
  
Gain on sales of outparcels
    
(524
)
  
(579
)
               
Net changes in operating assets and liabilities:
              
Tenant accounts receivable, net
    
(374
)
  
(886
)
Prepaid and other assets
    
(2,035
)
  
(1,581
)
Accounts payables and accrued expenses
    
5,457
    
(7,992
)
               
Net cash provided by operating activities
    
87,929
    
78,935
  
               
Cash flows from investing activities:
              
Acquisitions and additions to investment in real estate
    
(65,487
)
  
(63,393
)
Proceeds from sale of outparcels
    
1,560
    
2,228
 
Proceeds from sales of properties
   
19,000
    
111,399
  
(Payments to) withdrawals from restricted cash
    
(1,038
)
  
5,235
  
Additions to deferred expenses
    
(5,710
)
  
(5,217
)
               
Net cash (used in) provided by investing activities
    
(51,675
)
  
50,252
  
               
Cash flows from financing activities:
              
Proceeds from (payments to) revolving line of credit, net
    
55,000
    
(16,800
)
Proceeds from issuance of mortgage notes payable
    
56,643
    
231,500
  
Principal payments on mortgage and other notes payable
    
(83,843
)
  
(305,492
)
Loss on extinguishment of debt
    
-
    
557
  
Proceeds from the issuance of Series G Preferred Shares, net of underwriting
costs of $5,198
    
-
   
144,802
 
Redemption of Series B Preferred Shares
    
-
   
(127,950
)
Dividend reinvestment and Share Purchase Plan
    
6,962
    
8,881
  
Cash distributions
    
(69,753
)
  
(68,895
)
               
Net cash used in financing activities
    
(34,991
)
  
(133,397
)
               
Net change in cash and cash equivalents
    
1,263
    
(4,210
)
               
Cash and cash equivalents, at beginning of period
    
8,446
    
11,040
  
               
Cash and cash equivalents, at end of period
  
$
9,709
  
$
6,830
  
 
The accompanying notes are an integral part of these consolidated financial statements.
6
GLIMCHER REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)


1.
Organization and Basis of Presentation

Organization

Glimcher Realty Trust is a fully-integrated, self-administered and self-managed, Maryland real estate investment trust (“REIT”), which owns, leases, manages and develops a portfolio of retail properties (the “Property” or “Properties”) consisting of enclosed regional and super regional malls (“Malls”) and community shopping centers, including single tenant retail properties (“Community Centers”). At September 30, 2005, the Company owned and operated a total of 39 Properties consisting of 24 Malls and 15 Community Centers of which 12 Properties are being held for sale, see Note 3. The “Company” refers to Glimcher Realty Trust, Glimcher Properties Limited Partnership, a Delaware limited partnership, as well as entities in which the Company has an interest.

Basis of Presentation

The consolidated financial statements include the accounts of Glimcher Realty Trust (“GRT”), Glimcher Properties Limited Partnership (the “Operating Partnership,”“OP” or “GPLP”) and Glimcher Development Corporation (“GDC”). As of September 30, 2005, GRT was a limited partner in GPLP with a 91.3% ownership interest and GRT’s wholly owned subsidiary, Glimcher Properties Corporation, was GPLP’s sole general partner. GDC provides development, construction, leasing and legal services to the Company’s affiliates and is a taxable REIT subsidiary. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information furnished in the accompanying consolidated balance sheets, statements of income and comprehensive income and statements of cash flows reflect all adjustments which are, in the opinion of management, recurring and necessary for a fair statement of the aforementioned financial statements for the interim period. Operating results for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The December 31, 2004 balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, 2004.

2.
Summary of Significant Accounting Policies

Revenue Recognition

Minimum rents are recognized on an accrual basis over the terms of the related leases on a straight-line basis. Included in tenant accounts receivables, net are straight-line receivables of $25,971 and $25,643 at September 30, 2005 and December 31, 2004, respectively. Percentage rents, which are based on tenants’ sales, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’ leases. Estimated recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable costs are incurred. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. Other revenues primarily consist of licensing agreement revenues, which are recognized as earned, and the proceeds from sales of development land, which are generally recognized at the closing date.

7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)


Tenant Accounts Receivable

The allowance for doubtful accounts reflects the Company’s estimate of the amounts of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. The Company’s policy is to record a periodic provision for doubtful accounts based on total revenues. The Company also periodically reviews specific tenant balances and determines whether an additional allowance is necessary. In recording such a provision, the Company considers a tenant’s creditworthiness, ability to pay, probability of collection and the retail sector in which the tenant operates. The allowance for doubtful accounts is reviewed periodically based upon the Company’s historical experience. Tenant accounts receivable in the accompanying balance sheets are stated net of the allowance for doubtful accounts of $8,056 and $8,545 at September 30, 2005 and December 31, 2004, respectively.

Investment in Real Estate

Real estate assets, including acquired assets, are stated at cost. Costs incurred for the development, construction and improvement of Properties are capitalized, including direct costs incurred by the Company for these activities. Interest and real estate taxes incurred during construction periods are capitalized and depreciated on the same basis as the related assets.

Depreciation expense is computed using a straight-line method and estimated useful lives for buildings and improvements using a weighted average composite life of forty years and equipment and fixtures of five to ten years. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the term of each lease. Cash allowances paid for improvements to real estate owned by retailers are capitalized as contract intangibles and amortized over the life of the operating agreement. Cash allowances paid to retailers that are used for purposes other than improvements to the real estate are amortized as a reduction to minimum rents over the initial lease term. Maintenance and repairs are charged to expense as incurred.

Management evaluates the recoverability of its investment in real estate assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the asset is not assured.

The Company evaluates the recoverability of its investments in real estate assets to be held and used each quarter and records an impairment charge when there is an indicator of impairment and the undiscounted projected future cash flows are less than the carrying amount for a particular Property. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Company’s plans for the respective assets and the Company’s views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective Properties and comparable properties and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the Company’s plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.

The Company recognizes property sales in accordance with SFAS No. 66, “Accounting for Sales of Real Estate.” The Company generally records the sales of operating properties and outparcels using the full accrual method at closing when the earnings process is deemed to be complete. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods.

Investment in Real Estate - Held for Sale

The Company evaluates held for sale classification of its owned real estate on a quarterly basis.

Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held for sale once management commits to a plan to sell the properties and has initiated an active program to market them for sale. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported. At September 30, 2005, twelve Properties were classified as held for sale.

On occasion, the Company will receive unsolicited offers from third parties to buy individual Properties. Under these circumstances, the Company will classify the respective Property as held for sale when a sales contract is executed with no contingencies and the prospective buyer has sufficient funds at risk to ensure performance.

8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)
 
Accounting for Acquisitions

The fair value of the real estate acquired is allocated to acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting was applied to assets and liabilities related to real estate entities acquired based upon the percentage of interest acquired.

The fair value of the tangible assets of an acquired property (which includes land, building and tenant improvements) is determined by valuing the property as if it were vacant, based on management’s determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methods to determine the replacement cost of the tangible assets.

In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial lease term.

The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. Due to the high occupancy of the Malls acquired to date, management has assigned no value to these assets.

The aggregate value of other acquired intangible assets include tenant relationships. Factors considered by management in assigning a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions and an approximate time lapse in rental income while a new tenant is located. The value assigned to this intangible asset is amortized over the average life of the relationship.

Deferred Costs

The Company capitalizes initial direct costs in accordance with SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases,” and amortizes these costs over the initial lease term. The costs are capitalized upon the execution of the lease and the amortization period begins the earlier of the store opening date or the date the tenant’s lease obligation begins.

Stock-Based Compensation

Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” prospectively to all awards granted, modified or settled on or after January 1, 2003. Accordingly, the Company recognized as compensation expense the fair value of all awards granted after January 1, 2003. Prior to January 1, 2003, the Company applied Accounting Principles Board Opinion No. 25 (“APB 25”) and related interpretations in accounting for its plans. Under the provisions of APB 25, the Company was not required to recognize compensation expense related to options because the options were granted at a price equal to the market price on the day of grant. Had compensation cost for the plans been determined based on the fair value at the grant dates for grants under these plans consistent with SFAS No. 123, the Company’s net income (loss) available to common shareholders would have been decreased $0 and $10 for the three months ended September 30, 2005 and September 30, 2004, respectively and $4 and $30 for the nine months ended September 30, 2005 and September 30, 2004, respectively. There would have been no changes in reported basic or diluted earnings per share.

9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

Supplemental Disclosure of Non-Cash Financing and Investing Activities

As a result of the Company’s acquisitions of joint venture interests owned by third parties, the Company had non-cash debt assumptions and issued OP Units. The debt assumed was $193,190 for the nine months ending September 30, 2004. In January 2004, the Company issued 594,342 new OP Units with an approximate value of $13,564 in connection with the acquisition of the remaining joint venture interests in Polaris Fashion Place, an approximately 1.6 million square foot upscale regional Mall located in Columbus, Ohio. Non-cash transactions resulting from other accounts payable and accrued expenses for ongoing operations such as real estate improvements and other assets were $1,537 and $272 as of September 30, 2005 and September 30, 2004, respectively.
 
Share distributions of $17,491 and $17,157 and Operating Partnership distributions of $1,556 and $1,670 had been declared, but not paid as of September 30, 2005 and December 31, 2004, respectively. Series F cumulative preferred share distributions of $1,313 had been declared, but not paid as of September 30, 2005 and December 31, 2004. Series G cumulative preferred share (“Series G Preferred Shares”) distributions of $3,047 and $3,046 had been declared but not paid as of September 30, 2005 and December 31, 2004, respectively.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
 
New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), to expand and clarify SFAS No. 123 in several areas. The Statement requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The cost is recognized to expense over the requisite service period (usually the vesting period) for the estimated number of instruments where service is expected to be rendered. This Statement is effective beginning in the first quarter of 2006 for awards issued after June 15, 2005. Since the Company previously adopted the provisions of expensing stock-based compensation using the fair value based method of accounting as permitted under SFAS No. 123, the Company does not expect its financial statements will be materially impacted by SFAS No. 123(R).

Reclassifications

Certain reclassifications of prior period amounts, including the presentation of the statement of income required by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” have been made in the financial statements to conform to the 2005 presentation.
 
3.
Assets Held for Sale

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. In the third quarter of 2005, management committed to a plan to sell twelve Properties and initiated an active program to market them. Accordingly, these assets were reclassified as held for sale as of September 30, 2005. Impairment losses on held for sale properties totaled $15,018 and $16,393 for the three months and nine months ended September 30, 2005, respectively. In addition to classifying these properties as held for sale, the financial results, including any impairment charges of these properties are reported as discontinued operations and the net book value of the assets are reflected as held for sale on the balance sheet.

10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

4.
Mortgage Notes Payable as of September 30, 2005 and December 31, 2004 consist of the following:
 
 Description
  
 Carrying Amount
of Mortgage Notes Payable
  
Interest
Rate
  
Interest
Terms
 
Payment
Terms 
  
Payment
at
Maturity
  
Maturity Date
  
   
 2005
  
 2004
  
2005
  
2004
                  
Fixed Rate:
                                  
Weberstown Mall, LLC
  
$
19,193
  
$
19,383
    
7.43
%
  
7.43
%
        
(a)
 
$
19,033
    
May 1, 2006
  
SAN Mall, LP
    
33,644
    
33,985
    
8.35
%
  
8.35
%
        
(a)
 
$
32,615
    
(d)
 
Colonial Park Mall, LP
    
33,101
    
33,459
    
7.73
%
  
7.73
%
        
(a)
 
$
32,033
    
(d)
 
Mount Vernon Venture, LLC
    
8,892
    
8,968
    
7.41
%
  
7.41
%
        
(a)
 
$
8,624
    
February 11, 2008
  
Charlotte Eastland Mall, LLC
    
44,750
    
45,292
    
7.84
%
  
7.84
%
        
(a)
 
$
42,302
    
(e)
 
Morgantown Mall Associates, LP
    
53,601
    
54,227
    
6.89
%
  
6.89
%
        
(a)
 
$
50,823
    
(e)
 
Grand Central, LP
    
48,755
    
49,276
    
7.18
%
  
7.18
%
        
(a)
 
$
46,065
    
February 1, 2009
  
Johnson City Venture, LLC
    
39,317
    
39,606
    
8.37
%
  
8.37
%
        
(a)
 
$
37,026
    
June 1, 2010
  
Polaris Center, LLC
    
41,067
    
41,387
    
8.20
%
  
8.20
%
        
(a)
 
$
38,543
    
(f)
 
Glimcher Ashland Venture, LLC
    
25,428
    
25,770
    
7.25
%
  
7.25
%
        
(a)
 
$
21,817
    
November 1, 2011
  
Dayton Mall Venture, LLC
    
56,917
    
57,481
    
8.27
%
  
8.27
%
        
(a)
 
$
49,864
    
(g)
 
Glimcher WestShore, LLC
    
97,182
    
98,275
    
5.09
%
  
5.09
%
        
(a)
 
$
84,824
    
September 9, 2012
  
University Mall,, LP
    
64,157
    
65,050
    
7.09
%
  
7.09
%
        
(a)
 
$
52,524
    
(h)
 
PFP Columbus, LLC
    
145,004
    
146,631
    
5.24
%
  
5.24
%
        
(a)
 
$
124,572
    
April 11, 2013
  
LC Portland, LLC
    
135,831
    
137,285
    
5.42
%
  
5.42
%
        
(a)
 
$
116,922
    
(i)
 
JG Elizabeth, LLC
    
162,001
    
163,827
    
4.83
%
  
4.83
%
        
(a)
 
$
135,194
    
June 8, 2014
  
MFC Beavercreek, LLC
    
111,271
    
112,423
    
5.45
%
  
5.45
%
        
(a)
 
$
92,762
    
November 1, 2014
  
Glimcher SuperMall Venture, LLC
    
60,541
    
61,107
    
7.54
%
  
7.54
%
        
(a)
 
$
49,969
    
(j)
 
Tax Exempt Bonds
    
19,000
    
19,000
    
6.00
%
  
6.00
%
        
(c)
 
$
19,000
    
November 1, 2028
  
     
1,199,652
    
1,212,432
                                      
Variable Rate/Bridge:
                                                  
Montgomery Mall Associates, LP
    
25,000
    
-
   
5.60
%
        
(k)
 
  
(b)
 
$
25,000
    
February 1, 2006
  
GM Olathe, LLC
    
30,000
    
30,000
    
5.77
%
  
4.40
%
  
(l)
 
  
(b)
 
$
30,000
    
June 9, 2006
  
Glimcher Columbia, LLC
    
7,787
    
7,955
    
6.19
%
  
4.78
%
  
(m)
 
  
(a)
 
$
7,595
    
August 1, 2006
  
EM Columbus, LLC
    
36,643
    
24,000
    
5.83
%
  
4.42
%
  
(n)
 
  
(b)
 
$
36,643
    
January 1, 2007
  
     
99,430
    
61,955
                                      
Other:
                                                  
Fair value adjustment -
                                                 
Polaris Center, LLC
    
2,001
    
2,322
                                      
Extinguished debt
    
-
    
51,895
                                      
                                                   
Total Mortgage Notes Payable:
  
$
1,301,083
  
$
1,328,604
                                      

(a)
The loan requires monthly payments of principal and interest.
(b)
The loan requires monthly payments of interest only.
(c)
The loan requires semi-annual payments of interest.
(d)
The loan matures in October 2027, with an optional prepayment date on October 11, 2007.
(e)
The loan matures in September 2028, with an optional prepayment date on September 11, 2008.
(f)
The loan matures in June 2030, with an optional prepayment date on June 1, 2010.
(g)
The loan matures in July 2027, with an optional prepayment date on July 11, 2012.
(h)
The loan matures in January 2028, with an optional prepayment date on January 11, 2013.
(i)
The loan matures in June 2033, with an optional prepayment date on June 11, 2013.
(j)
The loan matures in September 2029, with an optional prepayment date on February 11, 2015.
(k)
Interest rate of LIBOR plus 185 basis points.
(l)
Interest rate of LIBOR (capped by a derivative at 6.00%) plus 200 basis points until maturity.
(m)
Interest rate of LIBOR plus 250 basis points.
(n)
Interest rate of LIBOR plus 200 basis points.

All mortgage notes payable are collateralized by certain properties owned by the respective entities with net book values of $1,632,873 and $1,654,690 at September 30, 2005 and December 31, 2004, respectively. Certain of the loans contain financial covenants regarding minimum net operating income and coverage ratios. Additionally, two of the loans have cross-default provisions and are cross-collateralized with mortgages on the Properties owned by the borrower SAN Mall, LP and Morgantown Mall Associates, LP. Under such cross-default provisions, a default under any mortgage included in a cross-defaulted loan may constitute a default under all such mortgages under that loan and may lead to acceleration of the indebtedness due on each Property within the collateral pool. Additionally, $84,430 of mortgage notes payable relating to certain Properties have been guaranteed by GPLP as of September 30, 2005.

11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

5.
Notes Payable

During the third quarter, the Company closed on an amendment to its credit facility (the “Amended Credit Facility”). The Amended Credit Facility increases the borrowing availability from $150,000 to $300,000, changed the facility from a secured to an unsecured facility and extended the maturity date from October 2006 to August 2008 and has a one-year extension option available to the Company. The Amended Credit Facility is expandable to $400,000, provided there is no default under the Amended Credit Facility and provided one or more participating lenders agree to increase their funding commitment or one or more new participating lenders are added to the facility. The interest rate ranges from LIBOR plus 1.05% to LIBOR plus 1.55% depending upon the Company’s ratio of debt to total asset value. The Amended Credit Facility contains customary covenants, representations, warranties and events of default for facilities of this nature, including maintenance of a specified minimum net worth requirement, total debt to total asset value ratio; secured debt to total asset value ratio; interest coverage ratio and fixed charge coverage ratio. Management believes they are in compliance with the covenants as of September 30, 2005.

At September 30, 2005, the outstanding balance on the Amended Credit Facility was $129,000. Additionally, $4,700 represents a holdback on the available balance for letters of credit issued under the Amended Credit Facility at September 30, 2005. As of September 30, 2005, the unused balance of the Amended Credit Facility available to the Company was $166,300 and the interest rate was 5.01%.

At December 31, 2004, the outstanding balance on the prior credit facility was $74,000. Additionally, $4,600 represents a holdback on the available balance for letters of credit issued under the prior credit facility at December 31, 2004. As of December 31, 2004, the unused balance of the prior credit facility available to the Company was $71,400 and the interest rate was 4.10%.

6.
Restricted Stock

Pursuant to GRT’s 2004 Incentive Compensation Plan, 5,000 shares of restricted common stock were granted during the three month period ended September 30, 2005 and a total of 56,666 shares for the nine months ending September 30, 2005. These shares vest in one-third installments on the anniversary date of the recipient’s award agreement over a three-year period. As this restricted stock represents an incentive for future periods, the Company recognizes the related compensation expense ratably over the applicable vesting periods.

7.
Preferred Shares

GRT’s Declaration of Trust authorizes GRT to issue up to an aggregate 100,000,000 shares of GRT, consisting of common shares and/or one or more series of preferred shares of beneficial interest.

On February 27, 2004, GRT redeemed the 5,118,000 Series B cumulative preferred shares (“Series B Preferred Shares”). Shareholders of record at the close of business on February 27, 2004 received a redemption price of $25.00 per share plus an amount equal to the distributions accrued and unpaid. The total amount used to redeem the shares, including accrued dividends, was $129,824. GRT recorded a reduction to net earnings available to common shareholders of $4,878 during the nine months ended September 30, 2004, as required under Emerging Issues Task Force Topic Number D-42, “The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock.” This charge represents costs that were incurred and recorded in “Additional Paid In Capital” at the time of the initial issuance of the Series B Preferred Shares in 1997.

On February 23, 2004, GRT completed a $150,000 public offering of 6,000,000 shares of 8.125% Series G Preferred Shares. Aggregate net proceeds of the offering were $145,300. Distributions on the Series G Preferred Shares are payable quarterly in arrears beginning on April 15, 2004. The Company generally may redeem the Series G Preferred Shares anytime on or after February 23, 2009, at a redemption price of $25.00 per share, plus accrued and unpaid distributions. The proceeds were used to redeem the Series B Preferred Shares on February 27, 2004 and to pay down $16,900 of the Company’s prior credit facility, which was drawn upon to pay off $17,000 of subordinated mortgage debt relating to the Company’s Great Mall of the Great Plains in Olathe, Kansas on February 9, 2004.
 
8.
Commitments and Contingencies

At September 30, 2005, there were 3.2 million OP Units outstanding. These OP Units are redeemable, at the option of the holders, beginning on the first anniversary of their issuance. The redemption price for an OP Unit shall be, at the option of GPLP, payable in the following form and amount: (a) cash at a price equal to the fair market value of one Common Share of the Company or (b) Common Share at the exchange ratio of one share for each OP Unit. The fair value of the OP Units outstanding at September 30, 2005 is $80,600 based upon a per unit value of $24.91 at September 30, 2005, (based upon a five-day average of the Common Share price from September 23, 2005 to September 29, 2005).

12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

The Company has reserved $769 in relation to a contingency associated with the sale of Loyal Plaza, a community center sold in 2002, relating to environmental assessment and monitoring matters.

The Company is involved in lawsuits, claims and proceedings, which arise in the ordinary course of business. The Company is not presently involved in any material litigation. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although the outcome of any litigation is uncertain, the Company does not expect any such legal actions to have a material adverse effect on the Company’s consolidated financial condition or results of operations taken as a whole.

During the fourth quarter of 2004, GRT received a subpoena for documents from the Securities and Exchange Commission (“SEC”) in connection with an investigation concerning the election by PricewaterhouseCoopers LLP not to renew its engagement as the independent accountant for the Company (which was previously reported by GRT in Forms 8-K and 8-K/A filed on June 8 and June 15, 2004, respectively) and a related party transaction involving the Company’s City Park development project (which transaction was previously reported by GRT in its Form 10-K filed on March 12, 2004). During the first quarter of 2005, the Company also received a subpoena for documents from the SEC that primarily seeks documents concerning the restatement of the Company's financial statements for the years ended 2001 through 2003 (which restatement was reported by the Company in a Form 8-K filed on February 22, 2005). The Company is cooperating fully with each investigation.
 
9.
Earnings Per Share (shares in thousands)

The presentation of basic EPS and diluted EPS is summarized in the table below:
 
   
  For the Three Months Ended September 30,
  
   
 2005
  
 2004
  
   
  Income
  
 Shares
  
 Per Share
  
 Income
  
 Shares
  
 Per Share
  
Basic EPS                                      
Income from continuing operations
  
$
10,530
              
$
4,733
              
Less: Preferred stock dividends
    
(4,360
)
              
(4,360
)
            
Minority interest adjustments (1)
    
(1,067
)
              
1,814
              
Income from continuing operations
  
$
5,103
    
36,146
  
$
0.14
  
$
2,187
    
35,574
  
$
0.06
  
                                       
Discontinued operations
  
$
(12,872
)
            
$
19,930
              
Minority interest adjustments (1)
    
1,067
                
(1,814
)
            
Discontinued operations
  
$
(11,805
)
  
36,146
  
$
(0.33
)
$
18,116
    
35,574
  
$
0.51
  
                                       
Diluted EPS
                                      
Income from continuing operations
  
$
10,530
    
36,146
        
$
4,733
    
35,574
        
Less: Preferred stock dividends
    
(4,360
)
              
(4,360
)
            
Minority interest adjustments
    
(618
)
              
1,830
              
Operating Partnership Units
          
3,267
                
3,563
        
Options
         
489
                
410
        
Restricted Shares
         
54
                          
                                           
Income from continuing operations
  
$
5,552
    
39,956
  
$
0.14
  
$
2,203
    
39,547
  
$
0.06
  
                                       
Discontinued operations
  
$
(12,872
)
  
39,956
  
$
(0.32
)
$
19,930
    
39,547
  
$
0.50
  
 
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)
 
   
  For the Nine Months Ended September 30,
  
   
 2005
  
 2004
  
   
  Income
  
 Shares
  
 Per Share
  
 Income
  
 Shares
  
 Per Share
  
Basic EPS                          
Income from continuing operations
  
$ 18,935
          
$ 14,344
          
Less: Preferred stock dividends
    
(13,078
)
              
(13,158
)
            
Less: Preferred stock redemption
    
-
                
(4,878
)
            
Minority interest adjustments (1)
    
(1,059
)
              
2,500
              
Income from continuing operations
  
$
4,798
    
35,900
  
$
0.13
  
$
(1,192
)
  
35,402
  
$
(0.03
)
                                       
Discontinued operations
  
$
(12,202
)
            
$
27,308
              
Minority interest adjustments (1)
    
1,059
                
(2,500
)
            
Discontinued operations
  
$
(11,143
)
  
35,900
  
$
(0.31
)
$
24,808
    
35,402
  
$
0.70
  
                                       
Diluted EPS
                                      
Income from continuing operations
  
$
18,935
    
35,900
        
$
14,344
    
35,402
        
Less: Preferred stock dividends
    
(13,078
)
              
(13,158
)
            
Less: Preferred stock redemption
    
-
                
(4,878
)
            
Minority interest adjustments
    
(577
)
              
2,135
              
Operating Partnership Units
          
3,404
                
3,555
        
Options
         
495
                
459
        
Restricted Shares
         
32
                          
                                           
Income from continuing operations
  
$
5,280
    
39,831
  
$
0.13
  
$
(1,557
)
  
39,416
  
$
(0.04
)
                                       
Discontinued operations
  
$
(12,202
)
  
39,831
  
$
(0.31
)
$
27,308
    
39,416
  
$
0.69
  

 
(1)
The minority interest adjustment reflects the reclassification of the minority interest expense from continuing to discontinued operations for appropriate allocation in the calculation of the earnings per share for discontinued operations.

Options with exercise prices greater than the average share prices for the periods presented were excluded from the respective computations of diluted EPS because to do so would have been antidilutive. The number of such options was 344 and 430 for the nine months ended September 30, 2005, and 2004, respectively.

10.
Discontinued Operations

Financial results of Properties the Company sold in previous periods are reflected in discontinued operations for all periods reported. For the nine months ended September 30, 2005, the Company sold one Community Center and one Mall for $13,750 resulting in a gain of $1,703. For the nine months ended September 30, 2004, the Company sold 28 Community Centers for $111,399 resulting in a net gain of $21,797. Total revenues for the Properties previously sold and classified as held for sale were $3,864 and $5,903 for the three months ended September 30, 2005 and 2004, respectively and $14,293 and $23,113 for the nine months ended September 30, 2005 and 2004, respectively.

11.
Acquisitions

Intangibles, which were recorded at the acquisition date, associated with acquisitions of WestShore Plaza, Eastland Mall (OH), Polaris Fashion Place and Polaris Towne Center are comprised of an asset for acquired above-market leases of $7,940, a liability for acquired below-market leases of $17,951 and an asset for tenant relationships of $4,156. The intangibles related to above and below-market leases are being amortized as a net increase to minimum rents on a straight-line basis over the lives of the leases with a weighted average amortization period of 10.9 years. Amortization of the tenant relationship is recorded as amortization expense on a straight-line basis over the estimated life of the 12.5 years. Net amortization for all of the acquired intangibles is an increase to net income in the amount of $381 and $491 for the nine months ended September 30, 2005 and 2004, respectively. The net book value of the above-market leases is $5,777 and $6,742 as of September 30, 2005 and December 31, 2004, respectively, and is included in the accounts payable and accrued liabilities on the consolidated balance sheet. The net book value of the below-market leases is $14,064 and $15,655 as of September 30, 2005 and December 31, 2004, respectively and is included in the accounts payable and accrued liabilities on the consolidated balance sheet. The net book value of the tenant relationships is $3,580 and $3,827 as of September 30, 2005 and December 31, 2004, respectively and is included in prepaid and other assets on the consolidated balance sheet.

14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the unaudited consolidated financial statements of Glimcher Realty Trust (“GRT”) including the respective notes thereto, all of which are included in this Form 10-Q.

This Form 10-Q, together with other statements and information publicly disseminated by GRT, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, tenant bankruptcies, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of tenants within the retail industry, the failure of the Company to make additional investments in regional mall properties and redevelopment of properties, the failure to sell properties as anticipated and to obtain estimated sale prices, the failure to fully recover tenant obligations for common area maintenance (“CAM”), insurance, taxes and other property expenses, failure of GRT to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, increase in impairment charges, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q and in GRT’s other reports filed with the Securities and Exchange Commission (“SEC”).

Overview

GRT is a self-administered and self-managed REIT which commenced business operations in January 1994 at the time of its initial public offering. The “Company,”“we,”“us” and “our” are references to GRT, Glimcher Properties Limited Partnership, as well as entities in which the Company has an interest. We own, lease, manage and develop a portfolio of retail properties (“Properties”) consisting of enclosed regional and super regional malls (“Malls” or “Mall Properties”) and community shopping centers (“Community Centers”). As of September 30, 2005, we owned and managed 39 Properties, consisting of 24 Mall Properties and 15 Community Centers (including one single tenant retail property) located in 17 states. The Properties contain an aggregate of approximately 24.1 million square feet of gross leasable area (“GLA”) of which approximately 88.1% was occupied at September 30, 2005.

Our primary business objective is to achieve growth in net income and funds from operations (“FFO”) by developing and acquiring retail properties, by improving the operating performance and value of our existing portfolio through selective expansion and renovation of our Properties and by maintaining high occupancy rates, increasing minimum rents per square-foot of GLA and aggressively controlling costs.

Key elements of our growth strategies and operating policies are to:

 
·
Increase Property values by aggressively marketing available GLA and renewing existing leases;

 
·
Negotiate and sign leases which provide for regular or fixed contractual increases to minimum rents;

 
·
Capitalize on management’s long-standing relationships with national and regional retailers and extensive experience in marketing to local retailers, as well as exploit the leverage inherent in a larger portfolio of properties in order to lease available space;

 
·
Utilize our team-oriented management approach to increase productivity and efficiency;

 
·
Acquire strategically located malls;

 
·
Hold Properties for long-term investment and emphasize regular maintenance, periodic renovation and capital improvements to preserve and maximize value;

 
·
Selectively dispose of assets we believe have achieved long-term investment potential and re-deploy the proceeds;

 
·
Control operating costs by utilizing our employees to perform management, leasing, marketing, finance, accounting, construction supervision, legal and information technology services;

 
·
Renovate, reconfigure or expand Properties and utilize existing land available for expansion and development of outparcels to meet the needs of existing or new tenants; and

 
·
Utilize our development capabilities to develop quality properties at low costs.

15
Our strategy is to be a leading REIT focusing on enclosed malls and other anchored retail properties located primarily in the top 100 metropolitan statistical areas by population. We intend to continue investing in our existing Mall Properties and disposing of certain Community Centers as the marketplace creates favorable opportunities to do so. We expect to continue investing in select development opportunities and in strategic acquisitions of Mall Properties that provide growth potential. We expect to finance acquisition transactions with cash on hand, borrowings under credit facilities, proceeds from asset dispositions, proceeds from secured mortgage financings, proceeds from the issuance of equity or debt securities, or a combination of one or more of the foregoing.

Critical Accounting Policies and Estimates

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of the Board of Trustees. Actual results may differ from these estimates under different assumptions or conditions.
 
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that are reasonably likely to occur could materially impact the financial statements. No material changes to our critical accounting policies have occurred during the fiscal quarter ended September 30, 2005.

Funds from Operations (“FFO”)

Our consolidated financial statements have been prepared in accordance with GAAP. We have indicated that FFO, a non-GAAP financial measure, is also a key measure of financial performance. FFO is an important and widely used financial measure of operating performance in our industry, which we believe provides important information to investors and a relevant basis for comparison among REITs.
 
We believe that FFO is an appropriate and valuable measure of our operating performance because real estate generally appreciates over time or maintains a residual value to a much greater extent than personal property and, accordingly, reductions for real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Properties.

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) is used by the real estate industry and investment community as a supplemental measure of the performance of real estate companies. NAREIT defines FFO as net income (loss) available to common shareholders (computed in accordance with GAAP), excluding gains (or losses) from sales of properties, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. FFO does include impairment losses for properties held for use and held for sale. The Company’s FFO may not be directly comparable to similarly titled measures reported by other real estate investment trusts. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance or to cash flow from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

16
The following table illustrates the calculation of FFO and the reconciliation of FFO to net income available to common shareholders for the three and nine months ended September 30, 2005 and 2004 (in thousands): 
  
   
 For the Three Months 
Ended September 30, 
  
 For the Nine Months 
Ended September 30,
  
   
 2005
  
 2004 
  
 2005 
  
 2004 
  
Net income (loss) available to common shareholders
  
$
(6,702
)
$
20,303
  
$
(6,345
)
$
23,616
  
Add back (less):
                          
Real estate depreciation and amortization
    
18,123
    
18,322
    
56,922
    
57,533
  
Share of joint venture real estate depreciation and amortization
    
-
    
-
    
-
    
39
  
Minority interest in operating partnership
    
(618
)
  
1,830
    
(577
)
  
2,135
 
Discontinued operations: Gain on sales of properties
    
(1,737
)
  
(18,777
)
  
(1,703
)
  
(21,797
)
Funds from operations
  
$
9,066
  
$
21,678
  
$
48,297
  
$
61,526
  

FFO decreased 21.5% or $13.2 million for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. During the nine months ended September 30, 2005, we incurred a $16.4 million impairment charge to FFO in connection with properties that were either sold or held for sale. Also contributing to this decrease to FFO was a $7.2 million reduction in net operating income previously generated from the 29 Community Centers sold during 2004 as well as those properties that were disposed of during the nine months ended September 30, 2005. Lastly, general and administrative costs increased by $5.3 million. This increase is related to a $3.3 million charge for employment related matters and increased costs associated with corporate governance.

Offsetting these decreases in FFO was lower overall interest expense of approximately $5.6 million and a $3.9 million greater contribution from our Mall portfolio in 2005. The decrease in interest expense was driven primarily by lower outstanding borrowings for the nine months ended September 30, 2005 as compared with the same period ending September 30, 2004. We also incurred a $4.9 million charge associated with the original issuance costs of the Company’s Series B cumulative preferred shares of beneficial interest (“Series B Preferred Shares”) that were redeemed during the first quarter of 2004.

Results of Operations - Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Revenues

Total revenues increased 7.3%, or $5.8 million for the three months ended September 30, 2005 compared to the same period last year. Lease termination income was $3.1 million higher, minimum rents were up $1.2 million, tenant reimbursements increased by $1.1 million while ice rink and theater revenues were up $570,000. These increases were partially offset by a reduction in overage rents of $187,000.

Minimum rents

Minimum rents increased 8.7%, or $4.3 million, for the three months ended September 30, 2005. The increase is due primarily to higher termination income of $3.1 million in the third quarter of 2005 as compared to same period of 2004. There were also increases in base rent at the Malls of $1.1 million in the third quarter of 2005 compared to the same period of 2004.

Tenant reimbursements

Tenant reimbursements reflect an increase of 4.7%, or $1.1 million, for the three months ended September 30, 2005. The increase in revenue relates to a $1.6 million increase in recoverable expenses to be reimbursed by our tenants.

Other revenues

The $566,000 increase in other revenues is primarily due to the $570,000 increase in theater and ice rink revenues. Increases in box office and concession revenue as well as increases in the “Learn to Skate” program revenue have contributed to growth.

Expenses

Total expenses increased 5.2%, or $2.6 million, for the three months ended September 30, 2005. Real estate taxes and property operating expenses increased $1.6 million, the provision for doubtful accounts decreased $137,000, other operating expenses increased $607,000, depreciation and amortization increased $560,000 and general and administrative expenses increased $26,000.

17
Real estate taxes and property operating expenses

Real estate taxes and property operating expenses increased 5.9%, or $1.6 million, for the three months ended September 30, 2005. A tax reform act in Ohio was enacted in June 2005 with a retroactive impact effective to January 1, 2005 relating to the calculation of commercial property real estate tax. This change resulted in an increase of $694,000 in real estate tax for our Ohio Properties. Property operating expenses increased by $886,000, primarily due to increases in utility expenses.
 
Provision for doubtful accounts

The provision for doubtful accounts was $1.3 million, or 1.5% of revenue, for the three months ended September 30, 2005 and $1.4 million, or 1.8% of revenue, for the corresponding period in 2004. The improvement relates primarily to a provision of $530,000 recorded in the three months ended in September of 2004 related to amounts previously billed for tenant’s share of utilities. No such charge occurred in the three months ended September 30, 2005.

Other operating expenses

Other operating expenses were $2.4 million for the three months ended September 30, 2005 compared to $1.8 million for the corresponding period in 2004. The increase is due to higher legal fees at the property level in addition to increased expenses associated with volume increases at the theater and ice rink.

Depreciation and amortization

The $560,000 increase in depreciation and amortization for the three months ended September 30, 2005 is primarily the result of write-offs for spaces vacated by anchor tenants.

General and administrative

General and administrative expense was $3.6 million and represented 4.3% of total revenues for the three months ended September 30, 2005 compared to $3.6 million and 4.6% of total revenues for the corresponding period in 2004.

Interest expense/capitalized interest

Interest expense decreased 0.7%, or $0.2 million for the three months ended September 30, 2005. The summary below identifies the decrease by its various components (dollars in thousands).
 
   
 Three Months Ended September 30,
  
   
 2005
  
 2004
  
 Inc. (Dec.)
  
Average loan balance
  
$
1,372,150
  
$
1,368,054
  
$
4,096
  
Average rate
    
6.21
%
  
6.09
%
  
0.12
%
                     
Total interest
  
$
21,303
  
$
20,829
  
$
474
  
Amortization of loan fees
    
666
    
657
    
9
  
Capitalized interest and other
    
(761
)
  
(125
)
  
(636
)
Interest expense
  
$
21,208
  
$
21,361
  
$
(153
)

The increase in capitalized interest expense was primarily due to a significant increase in construction activity related to the Company’s redevelopment program.

Results of Operations - Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

Revenues

Total revenues increased 1.6%, or $3.9 million for the nine months ended September 30, 2005 compared to the same period last year. Lease termination income was $3.1 million higher, minimum rents were up $1.6 million, tenant recoveries increased by $740,000 while ice rink and theater revenues were up $414,000. These increases were partially offset by a reduction of $1.1 million in short-term tenant revenue, reduced proceeds from the sale of outparcels of $668,000 and lower overage rents of $215,000.

Minimum rents

Minimum rents increased 3.1%, or $4.7 million, for the nine months ended September 30, 2005. The increase is due to higher termination income of $3.1 million and an increase of $1.6 million in base rent at the Malls.

18
Tenant reimbursements

Tenant reimbursements reflect an increase of 1.1%, or $740,000, for the nine months ended September 30, 2005. The increase in revenue relates to improved recovery rates resulting from improved store occupancy and lower operating expenses at the Properties.

Other revenues

The $1.3 million decrease in other revenues is primarily due to $1.6 million received from the sale of outparcels for the nine months ended September 30, 2005 as compared to $2.2 million for the same period last year. In addition, licensing agreement revenue decreased $1.1 million related to the successful efforts to move short-term specialty tenants into long-term relationships, resulting in an increase to Mall Property base rents. The decreases were partially offset by increased revenue at the theater and ice rink.
 
Expenses

Total expenses increased 4.6%, or $7.2 million, for the nine months ended September 30, 2005. Real estate taxes and property operating expenses decreased $105,000, the provision for doubtful accounts decreased $698,000, other operating expenses increased $228,000, depreciation and amortization increased $2.4 million, and general and administrative expenses increased $5.3 million.

Real estate taxes and property operating expenses

Real estate taxes and property operating expenses decreased 0.1%, or $105,000, for the nine months ended September 30, 2005. The $2.0 million, or 7.7%, increase in real estate tax expenses that resulted from increases in the assessed value of several Properties and a change in the calculation of commercial property real estate tax at our Ohio Properties was more than offset by a reduction in property operating expenses of $2.1 million that was due primarily to savings from bringing housekeeping and security services in house.

Provision for doubtful accounts

The provision for doubtful accounts was $3.5 million for the nine months ended September 30, 2005 and $4.2 million for the corresponding period in 2004. The decrease relates to a 12% reduction in the billed accounts receivable balance since September 2004 and certain tenant issues that occurred in 2004 that required an incremental provision for doubtful accounts.

Other operating expenses

Other operating expenses were $7.0 million for the nine months ended September 30, 2005 compared to $6.8 million for the corresponding period in 2004. The increase is due to higher legal fees at the Properties.

Depreciation and amortization

The $2.4 million increase in depreciation and amortization for the nine months ended September 30, 2005, is primarily the result of write-offs for spaces vacated by anchor tenants.

General and administrative

General and administrative expense was $15.5 million and represented 6.3% of total revenues for the nine months ended September 30, 2005 compared to $10.1 million and 4.2% of total revenues for the corresponding period in 2004. The increase is due primarily to a $3.3 million charge relating to employment agreements, higher professional fees associated with corporate governance initiatives and increased corporate salaries.

Interest expense/capitalized interest

Interest expense decreased 7.5%, or $5.1 million for the nine months ended September 30, 2005. The summary below identifies the decrease by its various components (dollars in thousands).

19
 
 
 
Nine Months Ended September 30,  
  
   
2005 
  
2004 
  
Inc. (Dec.) 
  
Average loan balance
   $ 1,385,552  
$
1,410,636
  
$
(25,084
)
Average rate
    
6.04
%
  
6.06
%
  
(0.02
)%
                     
Total interest
  
$
62,766
  
$
64,113
  
$
(1,347
)
Amortization of loan fees
    
1,944
    
3,666
    
(1,722
)
Capitalized interest and other
    
(1,628
)
  
390
    
(2,018
)
Interest expense
  
$
63,082
  
$
68,169
  
$
(5,087
)

Costs associated with early extinguishment of debt, which are reflected in interest expense, are $1.8 million for the nine months ended September 30, 2004. Of this cost, $1.2 million is included in amortization of loan fees and represents the acceleration of loan fee amortization associated with the refinancing of mortgages. The variance in capitalized interest and other expense was due to a significant increase in construction activity ($1.1 million), the settlement of an interest rate swap ($391,000) and fees associated with the mortgage refinancing noted above ($557,000).

Liquidity and Capital Resources

Liquidity

Our short-term (less than one year) liquidity requirements include recurring operating costs, capital expenditures, debt service requirements and preferred and common dividend requirements. We anticipate that these needs will be met with cash flows provided by operations, the refinancing of maturing debt and proceeds from the sale of assets.

Our long-term (greater than one year) liquidity requirements include scheduled debt maturities, capital expenditures to maintain, renovate and expand existing assets, property acquisitions and development projects. Management anticipates that net cash provided by operating activities, the funds available under the credit facility, construction financing, long-term mortgage debt, issuance of preferred and common shares of beneficial interest and proceeds from the sale of assets will provide sufficient capital resources to carry out our business strategy relative to the acquisitions, renovations, expansions and developments.

At September 30, 2005, the Company’s total-debt-to-total-market capitalization was 54.8%, compared to 52.0% per annum at December 31, 2004 and 54.6% at September 30, 2004. We are working to maintain this ratio in the mid-fifty percent range. We expect to utilize the proceeds from future asset sales to reduce debt and, to the extent that market capitalization remains in the current range, to acquire additional regional mall properties.

The total-debt-to-total-market capitalization is calculated below (dollars, shares and OP Units in thousands except for stock price).
 
   
 September 30, 2005 
  
 September 30, 2004
  
Stock Price (end of period)
  
$
24.47
  
$
24.30
  
Market Capitalization Ratio:
              
Common Shares outstanding
    
36,379
    
35,586
  
OP Units outstanding
    
3,237
   
3,563
 
Total Common Shares and units outstanding at end of period
    
39,616
   
39,149
 
               
Market capitalization - Common Shares outstanding
  
$
890,195
  
$
864,740
  
Market capitalization - OP Units outstanding
    
79,209
   
86,581
 
Market capitalization - Preferred Shares
    
210,000
    
210,000
  
Total debt (end of period)
    
1,430,083
    
1,397,134
  
Total market capitalization
  
$
2,609,487
  
$
2,558,455
  
               
Total debt / total market capitalization
    
54.8
%
  
54.6
%
 
On March 24, 2004, we filed a universal shelf registration statement with the SEC. This registration statement permits us to engage in offerings of debt securities, preferred and common shares, warrants, rights to purchase our common shares, purchase contracts and any combination of the foregoing. The registration statement was declared effective on April 6, 2004. The amount of securities registered was $400 million, all of which is currently available for future offerings.

20
Discussion of Consolidated Statements of Cash Flows

Net cash provided by operating activities was $87.9 million for the quarter ended September 30, 2005. This amount represents a $9.0 million increase as compared to the same period last year.

Cash flows from investing activities

Net cash used by investing activities was $51.7 million for the nine months ended September 30, 2005 as compared to $50.3 million provided by for the nine months ended September 30, 2004. During 2005, we spent $65.5 million towards our investment in real estate. Of this amount, $41.0 million was spent on constructing additional GLA, primarily at Eastland Mall, (OH), The Mall at Fairfield Commons, Montgomery Mall, Lloyd Center, Northtown Mall, Great Mall of the Great Plains and the purchase of vacant anchor space at Polaris Fashion Place. We also spent $9.5 million on tenant improvements and allowances to re-tenant existing space. Lastly we spent $7.6 million associated with the acquisition of land in connection with the development of a department store anchored retail project to serve the Cincinnati, Ohio market (“City Park development”). The remaining amounts were spent on operational capital expenditures. Offsetting these capital outlays, we received $20.6 million from the sale of Southside Mall, Buckhannon Plaza and the former Lord & Taylor anchor space at Polaris Fashion Place and three outparcels.

For the nine months ended September 30, 2004, we spent $63.4 million on our investment in real estate. Of this amount, $42.9 million was paid for the acquisition of the remaining joint venture interests in Polaris Fashion Place and Polaris Towne Center (the “Polaris acquisition”), $7.4 million on our existing portfolio to create new GLA to generate incremental revenue sources and $12.7 million on second-generation capital expenditures. Also, we sold twenty-eight Community Centers and three outparcels for $113.6 million. The proceeds on these sales were used to pay down our outstanding variable rate debt.

Cash flows from financing activities

Net cash used in financing activities was $35.0 million for the nine months ended September 30, 2005 as compared to $133.4 million used for the nine months ended September 30, 2004. During the nine months ended September 30, 2005, we paid $83.8 million for principal payments on existing mortgage debt. This amount consisted of the extinguishment of the existing mortgage on Montgomery Mall and Southside Mall as well as normal principal payments. We also paid $69.8 million in dividends. Offsetting these payments were $56.6 million received from the issuance of mortgage notes payable. These funds were received in connection with the new $44.0 million mortgage loan on Montgomery Mall and proceeds of $12.6 million for the construction loan in connection with the redevelopment activities at Eastland Mall (OH). Also, we received $55.0 million from our credit facility. These proceeds were used to fund numerous redevelopment projects that are currently ongoing.

During the nine months ended September 30, 2004, net proceeds were received from the issuance of $150 million of the Series G cumulative preferred shares of beneficial interest (“Series G Preferred Shares”), which totaled a net amount of $144.8 million. This amount was offset by the redemption of the Series B Preferred Shares totaling $128.0 million. We received $231.5 million from the issuance of mortgage notes payable. During the second quarter of 2004, we refinanced Jersey Gardens Mall with a $165 million permanent mortgage loan. Also, we refinanced the Great Mall of the Great Plains with a $30 million two-year bridge facility. In the first quarter, we received $36.5 million that was used to fund the Polaris acquisition. Cash used to repay mortgage notes payable was $305.5 million. This amount can be attributed to the refinancing of Jersey Gardens Mall and the Great Mall of the Great Plains. Also, as a result of the sale of Community Centers in the third quarter of 2004, we paid off the bridge facility associated with the Polaris acquisition and satisfied the mortgage on River Valley Mall as well as additional principal payments required under our fixed rate debt mortgages. We also paid $68.9 million in dividend distributions for the nine months ended September 30, 2004.

Financing Activity

Total debt increased by $27.5 million during the first nine months of 2005. The change in outstanding borrowings is summarized as follows (in thousands): 
 
   
 Mortgage Notes
 
 Notes Payable
  
 Total Debt
  
December 31, 2004
  
$
1,328,604
  
$
74,000
  
$
1,402,604
  
New mortgage debt
    
56,643
          
56,643
  
Repayment of debt
    
(70,481
)
        
(70,481
)
Debt amortization payments in 2005
    
(13,362
)
  
-
    
(13,362
)
Amortization of fair value adjustment
    
(321
)
  
-
    
(321
)
Net borrowings, credit facility
    
-
    
55,000
    
55,000
  
September 30, 2005
  
$
1,301,083
  
$
129,000
  
$
1,430,083
  

21
At September 30, 2005, our mortgage notes payable were collateralized with first mortgage liens on 24 Properties having a net book value of $1,632.9 million. We also owned 15 unencumbered Properties and other corporate assets having a net book value of $159.4 million at that date.

Certain of our loans have multiple Properties as collateral for such loans, the Properties have cross-default provisions and certain of the Properties are subject to guarantees and financial covenants. Under the cross-default provisions, a default under a single mortgage that is cross-collateralized, may constitute a default under all of the mortgages in the pool of such cross-collateralized loans and could lead to acceleration of the indebtedness on all Properties under such loan. Properties which are subject to cross-default provisions have a total net book value of $81.8 million and represent one Community Center and three Malls. Properties under such cross default provisions relate to i) the Morgantown Mall Associates LP loan representing two Properties with a net book value of $42.5 million, and ii) the SAN Mall LP loan representing two Properties with a net book value of $39.3 million.

In the third quarter of 2005, we entered into one new financing arrangement and modified three existing arrangements. On July 15, 2005, we entered into an agreement under which we may borrow from time to time up to an additional $6 million, on the redevelopment loan for our Eastland Mall (OH) property until January 1, 2007, its maturity date. Our obligation to repay the loan is evidenced by a promissory note secured by a first mortgage lien on Eastland Mall (OH). This new loan increases the total loan availability for our Eastland Mall (OH) redevelopment financing from $36 million to $42 million. This loan bears interest at LIBOR plus 2.00% per annum. Additionally, on July 22, 2005, we extended the maturity date on our East Point Plaza mortgage loan from August 1, 2005 to August 1, 2006. On August 1, 2005, we entered into a $44 million promissory note secured by a first mortgage lien on Montgomery Mall in Montgomery, Alabama. The new mortgage loan matures on February 1, 2006 and bears interest at a variable rate of LIBOR plus 1.85% per annum. The loan features three separate options under which the borrowers may select to extend the loan for an additional six months. The proceeds of the loan were used to pay off $43.9 million of fixed rate mortgage notes on Montgomery Mall. As a condition of the loan agreement, we paid down the outstanding balance to $25 million upon closing on our Amended Credit Facility. The final modification of an existing arrangement was amending our former secured line of credit (“Prior Credit Facility”) to increase the borrowing availability from $150 million to $300 million and convert it from a secured facility to an unsecured facility (“Amended Credit Facility”) that matures in August 2008 with a one-year extension option available to the Company. The Amended Credit Facility is expandable to $400 million, subject to certain conditions, and the interest rate ranges from LIBOR plus 1.05% to LIBOR plus 1.55% depending upon our ratio of debt to total asset value. The Amended Credit Facility contains customary covenants, representations, warranties and events of default, including maintenance of a specified minimum net worth requirement, total debt to total asset value ratio; secured debt to total asset value ratio; interest coverage ratio and fixed charge coverage ratio.

Contractual Obligations and Commercial Commitments

Contractual Obligations

Long-term debt obligations are included in the consolidated balance sheet and the nature of the obligations are disclosed in the notes to the consolidated financial statements.

At September 30, 2005, we had the following obligations relating to dividend distributions. In the third quarter of 2005, the Company declared distributions of $0.4808 per common share, to be paid during the fourth quarter of 2005. The Series F cumulative preferred shares of beneficial interest (“Series F Preferred Shares”) and Series G Preferred Shares are not required to be redeemed and therefore, the dividends on those shares may be paid in perpetuity. However, as the Series F Preferred Shares are redeemable at our option on or after August 25, 2008, the obligation for the dividends for the Series F Preferred Shares are included in the contractual obligations through that date. Also, as the Series G Preferred Shares are redeemable at our option on or after February 23, 2009, the obligation for the dividends for the Series G Preferred Shares are also included in the contractual obligations through that date. The total dividend obligation for the Series F Preferred Shares and Series G Preferred Shares is $16.5 million and $44.4 million, respectively.

Capital lease obligations are for security equipment, phone systems and generators at the various Properties and are included in accounts payable and accrued expenses in the consolidated balance sheet. Operating lease obligations are for office space, ground leases, phone system, office equipment, computer equipment and other miscellaneous items. The obligation for these leases at September 30, 2005 was $5.7 million.
 
At September 30, 2005, there were 3.2 million OP Units outstanding. These OP Units are redeemable, at the option of the holders, beginning on the first anniversary of their issuance. The redemption price for an OP Unit shall be, at the option of GPLP, payable in the following form and amount: (a) cash at a price equal to the fair market value of one Common Share of the Company or (b) Common Shares at the exchange ratio of one share for each OP Unit. The fair value of the OP Units outstanding at September 30, 2005 is $80.6 million based upon a per unit value of $24.91 at September 30, 2005, (based upon a five-day average of the Common Stock price from September 23, 2005 to September 29, 2005).

22
At September 30, 2005, we had executed leases and operating agreements committing to $29.4 million in tenant allowances. The leases will generate gross rents which approximate $66.6 million over the original lease term.

Other purchase obligations relate to commitments to vendors related to various matters such as development contractors and other miscellaneous purchase commitments as well as a contract to purchase various land parcels for a development project. These obligations total $17.0 million at September 30, 2005.

Commercial Commitments

The Amended Credit Facility terms are discussed in Note 5 to the consolidated financial statements.

The standby letters of credits are for utility deposits ($150,000), a mortgage guarantee for The Mall at Fairfield Commons (“MFC”) ($4.0 million) and certain tenant and capital improvements ($521,000). These letters of credit will be released upon completion of specific requirements for certain tenants. We expect the tenants to meet the requirements and do not anticipate any payment to be required on these letters of credit.

Off-Balance Sheet Commitments:

We have no off-balance sheet arrangements (as defined in Item 303 of Regulation S-K).

Capital Expenditures

We plan capital expenditures by considering various factors such as: return on investment, our five-year capital plan for major facility expenditures such as roof and parking lots, tenant construction allowances based upon the economics of the lease terms and cash available for making such expenditures. We categorize capital expenditures into two broad categories, first-generation and second-generation expenditures. The first-generation expenditures relate to incremental revenues associated with new developments or creation of new GLA at our existing Properties. Second-generation expenditures are those expenditures associated with maintaining the current income stream and are generally expenditures made to maintain the Properties and to replace tenants for spaces that have been previously occupied. Capital expenditures are generally accumulated into a project and classified as “developments in progress” on the consolidated balance sheet until such time as the project is completed. At the time the project is complete, the dollars are transferred to the appropriate category on the balance sheet and are depreciated on a straight-line basis over the useful life of the asset.

We plan to invest approximately $51.0 million in redevelopment activity during the remaining part of 2005. These projects focus primarily on eight Mall Properties. We also plan to invest a total of $18.0 million in property capital expenditures for both operational needs and tenant improvements in 2005. In the first nine months of 2005, we spent $35.7 million for redevelopment activities, $9.5 million for tenant improvements and $4.5 million for operational needs.

Expansions and Renovations

We maintain a strategy of selective expansions and renovations in order to improve the operating performance and the competitive position of our existing portfolio. We also engage in an active redevelopment program with the objective of attracting innovative retailers, which we believe will enhance the operating performance of the Properties.

We have plans to add lifestyle retail components to Dayton Mall located in Dayton, Ohio, further enhancing the strong market share already enjoyed by this Property. The Dayton Mall project will include façade renovation and the addition of 97,000 square feet in an open-air center.

Eastland Mall located in Columbus, Ohio was acquired in December 2003 with redevelopment plans existing at the time of the acquisition. The expansion at this Mall includes the addition of a 120,000 square foot Kaufmann’s anchor store, approximately 30,000 square feet of outward facing retail, interior renovations (including a children’s soft play area) and new in-line tenants. We have installed additional amenities, including a state-of-the-art security system, comfortable seating and carpeted areas that will enhance the shopping experience. The new Kaufmann’s store opened in October 2005.

The Polaris Fashion Place redevelopment project centers around a replacement anchor for the parcel and building vacated by Lord & Taylor (the “Lord & Taylor parcel”). On May 16, 2005, we purchased the Lord & Taylor parcel from The May Department Stores Company. On July 20, 2005, we sold the Lord & Taylor parcel to Von Maur, Inc., an Iowa-based fashion specialty retailer (“Von Maur”). Von Maur plans to open their first Ohio store in the 140,000 square foot anchor space during the fourth quarter of 2005. In addition, we are constructing a new approximately 9,450 square foot multi-tenant building. Leasing of the planned multi-tenant building is complete and most of these tenants will also open during the fourth quarter of 2005.

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Redevelopment work is in process at Northtown Mall in Blaine, Minnesota. The expansion project includes tripling the size of the food court, renovating mall entrances and common areas and adding a new 10,000 square foot freestanding building to house two restaurants and additional specialty stores. Leasing of the new building is complete and tenants openings began during the third quarter and are anticipated to continue during the fourth quarter.

Construction of 22,000 square feet of new freestanding retail GLA is planned at Grand Central Mall in Parkersburg, West Virginia. The new buildings will replace a vacant older structure of 43,000 square feet that has been demolished. We anticipate that the new space will include a large apparel store, a fast-casual restaurant and a sit-down restaurant. Many of these new stores are targeted to open in the last half of 2005.

Redevelopment work is underway at Montgomery Mall in Montgomery, Alabama related to anchor and mall store re-tenanting. A new Steve & Barry’s store opened in May 2005 in the anchor space previously occupied by Dillard’s. In addition, JC Penney left their space in March 2005 and we are evaluating potential replacement tenants for this space.

Developments

One of our objectives is to increase our portfolio by developing new retail properties. Our management team has developed over 100 retail properties nationwide and has significant experience in all phases of the development process including: site selection, zoning, design, pre-development leasing, construction financing and construction management.

On April 7, 2005, we closed on the purchase of two parcels of land located in Mason, Ohio, consisting of approximately 78.2 acres for a purchase price of $7.8 million (the “Mason Parcels”). This land was purchased in connection with the City Park development. On May 31, 2005, we sold one of the parcels making up the Mason Parcels that consist of 9.154 acres for a price of $1.0 million. Additionally, in connection with the City Park development, we currently have an option to purchase an undivided one-half (1/2) interest in a parcel of land consisting of approximately 65.8 acres located in Mason, Ohio.

Portfolio Data
 
The table below reflects sales per square foot (“Sales PSF”) for those tenants reporting sales for the twelve-month period ended September 30, 2005. The percentage change is based on those tenants reporting sales for the twenty-four month period (“Same Store”) ended September 30, 2005.
 
     
Mall Properties 
    
Community Centers
  
 
 
 
Average
Sales PSF
 
 
Same Store
% Change
    
Average
Sales PSF
    
Same Store
% Change
  
Anchors
  
 
$155
    
(2.5)%
 
 
$189
    
(47.9)%
 
Stores (1)
  
 
$333
    
1.3% 
 
 
$204
    
(10.5)%
 
Total
  
 
$241
    
(0.3)%
 
 
$193
    
(42.3)%
 

 
(1)
Sales PSF for Mall Stores exclude outparcel and licensing agreement sales.

As we continue to upgrade our tenant mix, we believe the regional mall portfolio will deliver solid performance in the areas of sales productivity and rents. Average Mall store sales for the twelve months ended September 30, 2005 were $333 per square foot, a 4% improvement from the $320 per square foot reported for the twelve months ended September 30, 2004. Comparable stores sales, which include only those stores open for the twelve months ended September 30, 2005 and the same period of 2004, were also positive. Comparable store sales increased 1.3% for in-line stores.

Portfolio occupancy statistics by property type are summarized below: 
 
 
Occupancy (1)
 
9/30/05
  
6/30/05
  
3/31/05
  
12/31/04
  
9/30/04
Mall Anchors
92.6%
  
91.3%
  
91.3%
  
93.7%
  
94.5%
Mall Stores
87.5%
  
88.0%
  
87.6%
  
88.5%
  
85.8%
Total Mall Portfolio
90.8%
  
90.1%
  
90.0%
  
91.8%
  
91.4%
Comparable Mall Portfolio
90.8%
              
91.6%
Community Center Anchors
63.9%
  
63.8%
  
63.8%
  
67.9%
  
66.2%
Community Center Stores
64.8%
  
63.7%
  
65.3%
  
66.6%
  
69.1%
Total Community Center Portfolio
64.1%
  
63.8%
  
64.2%
  
67.6%
  
66.9%
Comparable Community Center
                  
Portfolio
64.1%
              
70.8%

(1)
Occupied space is defined as any space where a tenant is occupying the space or paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year.

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Malls

Mall store occupancy decreased to 87.5% at September 30, 2005 from 88.0% at June 30, 2005, but has improved from 85.8% in the comparable period in 2004. The decrease from June 2005 to September 2005 is consistent with the seasonal decline we experienced in the same period in 2004. The occupancy improvements from September 30, 2004 were primarily from our market dominant Malls. Mall store occupancy in our market dominant Malls improved by more than 400 basis points. Anchor occupancy improved since June 30, 2005, but has declined since September 30, 2004. These available anchor stores have approximately 100,000 square feet projected to open in 2005 that should bring the anchor occupancy in line with the December 31, 2004 occupancy rates by the end of the year.

New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), to expand and clarify SFAS No. 123 in several areas. The Statement requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The cost is recognized over the requisite service period (usually the vesting period) for the estimated number of instruments where service is expected to be rendered. This Statement is effective beginning in the first quarter of 2006 for awards issued after June 15, 2005. Since we previously adopted the provisions of expensing stock-based compensation using the fair value based method of accounting as permitted under SFAS No. 123, we do not expect our financial statements will be materially impacted by SFAS No. 123(R).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk. We use interest rate protection agreements to manage interest rate risks associated with long-term, floating rate debt. At September 30, 2005, approximately 84.0% of our debt, after giving effect to interest rate protection agreements, bore interest at fixed rates with weighted-average maturity of 7.2 years and a weighted-average interest rate of approximately 6.37%. At December 31, 2004 approximately 89.7% of our debt, after giving effect to interest rate protection agreements, bore interest at fixed rates with weighted-average maturity of 6.9 years, and a weighted-average interest rate of approximately 6.41%. The remainder of our debt at September 30, 2005 and December 31, 2004, bears interest at variable rates with weighted-average interest rates of approximately 5.42% and 4.34%, respectively.

At September 30, 2005 and December 31, 2004, the fair value of our debt (excluding our Prior Credit Facility and Amended Credit Facility) was $1,314.4 million and $1,353.6 million, respectively, compared to its carrying amounts of $1,301.1 million and $1,328.6 million, respectively. Our combined future earnings, cash flows and fair values relating to financial instruments are dependent upon prevalent market rates of interest, primarily LIBOR. Based upon consolidated indebtedness and interest rates at September 30, 2005 and 2004, a 100 basis points increase in the market rates of interest would decrease future earnings and cash flows by $571,000 and $334,000, respectively for the quarter. Also, the fair value of debt would decrease by approximately $39.7 million and $43.3 million, at September 30, 2005 and December 31, 2004. A 100 basis points decrease in the market rates of interest would increase future earnings and cash flows by $571,000 and $334,000, for the quarter ended September 30, 2005 and 2004, respectively, and increase the fair value of debt by approximately $42.4 million and $46.3 million, at September 30, 2005 and December 31, 2004. We have entered into certain cap and floor agreements which impact this analysis at certain LIBOR rate levels (see note 4 to the consolidated financial statements).

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis in the Company’s periodic reports filed with the SEC. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to provide reasonable assurance. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

(b) Changes in Internal Controls Over Financial Reporting. There were no changes in our internal controls over financial reporting during the third fiscal quarter of 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

The Company is involved in lawsuits, claims and proceedings, which arise in the ordinary course of business. The Company is not presently involved in any material litigation. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

During the fourth quarter of 2004, GRT received a subpoena for documents from the SEC in connection with an investigation concerning the election by PricewaterhouseCoopers LLP not to renew its engagement as the independent accountant for the Company (which was previously reported by GRT in Forms 8-K and 8-K/A filed on June 8 and June 15, 2004, respectively) and a related party transaction involving the Company’s City Park development project (which transaction was previously reported by GRT in its Form 10-K filed on March 12, 2004). During the first quarter of 2005, the Company also received a subpoena for documents from the SEC that primarily seeks documents concerning the restatement of the Company's financial statements for the years ended 2001 through 2003 (which restatement was reported by the Company in a Form 8-K filed on February 22, 2005). The Company is cooperating fully with each investigation.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.
OTHER INFORMATION

None

ITEM 6.
EXHIBITS
 
10.119
Severance Benefits Agreement, dated August 17, 2005, between Glimcher Realty Trust, Glimcher Properties Limited Partnership and Robert F. Beffa (incorporated by reference to the Company’s Form 8-K filed with the SEC on August 18, 2005).

10.120
Amended and Restated Credit Agreement, dated August 22, 2005, by and among Glimcher Properties Limited Partnership, KeyBank National Association and several other financial institutions (incorporated by reference to the Company’s Form 8-K filed with the SEC on August 23, 2005).

10.121
Guaranty, dated August 22, 2005, by Glimcher Realty Trust and Glimcher Properties Corporation to and for the benefit of KeyBank National Association, individually and as administrative agent for itself and the lenders under the Amended and Restated Credit Agreement (incorporated by reference to the Company’s Form 8-K filed with the SEC on August 23, 2005).

10.122
Form of Note (incorporated by reference to the Company’s Form 8-K filed with the SEC on August 23, 2005).

31.1
Certification of the Company’s CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2
Certification of the Company’s CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1
Certification of the Company’s CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2
Certification of the Company’s CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
     
  GLIMCHER REALTY TRUST
 
 		  
 		  
 
  By:   /s/ Michael P. Glimcher
 
 
Michael P. Glimcher
President, Chief Executive Officer and Trustee
(Principal Executive Officer)
 
 
     
  By:   /s/ Mark E. Yale
 
 
Mark E. Yale
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
 
Dated: October 27, 2005
 
 
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